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Falling for Amgen

Ahead of its second-quarter earnings release, Amgen looks good.

Amgen's(NASDAQ:AMGN) glass is half-full, but the market continues to think it is half-empty. That best explains why the biotech giant's share price lingers in the doldrums. Nearly 25% off its 52-week high and set for solid Q2 results (scheduled for release July 22), Amgen spells opportunity for investors.

Investors worry about Amgen's reliance on just a handful of drugs for sales. Two blockbusters, anemia treatments Epogen and Aranesp, account for almost half of Amgen's sales. Another concern: Medicare regulators are in the process of making changes to the way the system covers cancer-supporting drugs like Amgen's. More limited reimbursement policies could curtail the use of drugs beginning in 2005.

Still, there are positive signs ahead. Despite suffering a blow during the quarter when an experimental Parkinson's disease drug failed a midstage study, the company has two more drugs in late-stage clinical trials and 16 other candidates in midstage trials.

If just a portion of those pipeline products works out, Amgen could give big pharma players Merck(NYSE:MRK) and Eli Lilly(NYSE:LLY) a serious run for their money. Indeed, that's the big idea: Amgen is making the move from a narrow biotech into a diversified pharma company that discovers, produces, and markets big-selling drugs.

One of the few biotech companies to generate consistent profits, Amgen trades at just 20 times estimated 2004 earnings, and those earnings are projected to grow at 20% over the next three to five years. If Amgen falls much lower, investors should think seriously about buying in.